February 22, 2018
S&P MAR FUTURES (SPh8)
2688-90, 2675-8, 2639-40, 2627-8 Support
2744-6, 2754-6, 2765-8 Resistance
LINK TO TECHNICAL WEBINAR from Thursday-2/8/18 -https://stme.in/Uh50B92G8-
SPX - (2-3 Days)- Bullish -While some sectors have begun to fall by the wayside, the broader market remains intact and yesterday's reversal didn't do sufficient damage, particularly in the NDX, to suggest this move had run its course and a downtrend is imminent. 3 days of sideways to mildly lower prices, but yet S&P remains within striking distance of highs. If 2688 is violated, one could have greater conviction of a pullback. For now, XLF, XLI, XLY all closed positive and XLK failed to even violate prior days lows on a close, so this looks mild, and could still trend higher into early next week.
SX5E- EuroSTOXX 50- Mildly bullish to 3470, but a much weaker move off the lows for Europe than US, and doubtful SX5E can get back above 50% retracement of this decline without retesting. Downside likely limited to 3250 in the event that 3300 is broken on retest attempts
HSCEI- Bullish- Movement above 2/15 highs allows for higher prices, and gains to near 13k look possible in the short run.
Trading Longs: TCEHY, BABA, NBIX, LULU, MU, INTC, CY, PYPL, ESRX, ZTS, GILD, NTLA, MTOR, NEM, GDX, ALGN
Trading Shorts: VNQ, SHO, SLG, MO, JCI, USG, GRPN, ODP, RCII, BKS, MNK, DUK, EAT, EXP
Own/buy Technology for the next 2-3 days while SOX reaches former highs before selling. This sector looks to offer some temporary refuge, but should be sold into next week
Hold off on buying Gold, Silver until Dollar rally runs its course, which looks to be Thursday/Friday of this week. However, this dip in precious metals should be an excellent buying opportunity for a move back to new monthly highs in March. Gold will require a move back up over 1365 to officially breakout, but is looking increasingly more attractive as a risk/reward.
Sell Treasuries, Bunds, Gilts as the recent rally in rates does not look complete and a push back to new monthly highs for yields in bonds globally looks to occur. TNX looks to test 2.95-3.00% before any peak in yields.
Sell REITS, Utilities and Telecom as the Yield rise looks to extend, and this should be bearish for these yield sensitive groups, and could result in further near-term underperformance
Yesterday's reversal didn't do sufficient damage to think a large pullback is yet underway. While the reversal in S&P did manage to undercut prior lows, this didn't happen in the NASDAQ, and sectors like XLF, XLI, XLY also finished positive, despite being down from earlier highs. XLK also didn't violate prior lows, though did finish with a mild loss. Semiconductor stocks though held up relatively well and also failed to take out lows. Breadth was pretty even on the day, just a slight negative, while volume flowed into "down" vs "up" stocks at nearly a 3/1 pace, producing the second TRIN reading over 2 for the month of February, the last one coinciding with the exact low for stocks. Typically these outsized volume bursts on the downside which aren't matched by a strongly negative A/D can in fact allow for bounces in stocks within a few days' time. Heading into the last two days of the week, it still looks likely that a final push higher can occur for SPX, but also for NDX, XLK, XLF and this alone could be sufficient to keep indices afloat awhile longer. While we've remarked on the strange sector movement in recent weeks, yesterday's late day reversal didn't seem that important just yet. If S&P plunges down under 2688, this could certainly allow for further selling. However, it should be important that the sectors which amount fo 35-45% of SPX also reverse. For now, this hasn't happened.
The larger move which most feel is responsible for equity weakness seemed to occur from the Treasury market in turning lower again, something which caused a move back over 2.9% in TNX and resulted in further widening in Treasury vs Bund yields. While it looks like Treasuries are the better "short" on a 3-5 day basis, Bund and Gilt yields also look to rise, and buying global bonds still looks a bit premature. The Dollar index meanwhile, rose back over 90 and neared its own area of importance, which could result in USD stalling out and turning back lower in the days ahead. For now, Treasury yields look more likely to extend in the days ahead than the US Dollar.
Additional charts and thoughts below.
Given the NASDAQ's tendency to lead the SPX at major inflection points, Tuesday's reversal didn't look too important just yet, and prices failed to even reverse down under prior days lows. This is a far cry from the "Big reversal" cries heard on Financial media. While its rare to see 1% gains reverse to -0.50% declines by end of session, it's typically necessary to see prices undercutting prior days lows to have any real concern. Thus far in the NASDAQ, this remains premature and the structure has not broken down. Gains higher into early next week would trigger sufficient counter-trend exhaustion next week to consider selling into. At present, we don't seem to be quite there, and Demark signals are early, not just for NDX, SPX, but also XLF, XLK, XLI and XLY. Therefore, a bit more strength looks possible before any peakout.
The most important move of yesterday had little to do with stocks, but rather Treasuries, as yields pushed over the highs of the last couple days, making the highest yield close since early 2014. Counter-trend signs of exhaustion remain at least 3-5 days away, suggesting that our first test of 3% in nearly four years could be imminent. At present, it's premature to buy Treasuries at these levels despite the ramping up of bearish sentiment. Yields look likely to trend higher into next week, and it's better to stay short Treasuries, and if looking, to buy Bunds instead, as the spread between Treasury and Bund yields could continue to widen out. Overall, i see January 2014 yield highs as being significant resistance along with hitting resistance levels of the 30-year downtrend channel that should not be exceeded given the significant level of Speculators now betting on higher rates.
The rolling over in VNQ has managed to violate intermediate-term trendlines going back to at least 2011 this month with February's plunge. Given that yields still look to trend higher over the next 1-2 weeks, this looks like an ongoing intermediate-term short, and could pullback to near two-year anniversary lows from February 2016 at $70.89 at a minimum. At present, Tuesday's drawdown constituted a fairly negative decline that likely can extend. One should avoid the REITS as yields push higher.
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